Eskom, Tough Talk & Gardening: All you need to know about #Budget2019
Finance Minister Tito Mboweni delivered a tough maiden budget in the National Assembly, complete with a prickly plant.
CAPE TOWN - Less money to play with, stubbornly low growth, SOEs dependent on the state for their month-to-month survival, and a nation that’s spending way more than it’s making.
These are some of the key outtakes from Finance Minister Tito Mboweni’s maiden Budget speech.
Mboweni combined tough talk, and bitter realities, with a dose of gardening, likening the economy to a plant, and illustrating his example with a gift of three Aloe Ferox succulents for the President, Deputy President and Speaker.
The indigenous plant is also known as the bitter aloe, it’s known for its hardiness and drought resistance, as well as its medicinal properties.
“We must take the bitter with the sweet,” he told parliamentarians. “Today, I bring you a seed to prove that if we plant anew, we can return to those plum times.”
Key to setting the nation on a path to fruitfulness, is a commitment to reducing expenditure, addressing the rot of corruption and raising the levels of growth.
Mboweni says GDP growth is forecast at 1.5%, increasing to 2.1% in 2021.
It’s a modest forecast, that will not be enough to fund the nation’s spending, which will rise, this year to R1.83 trillion.
That makes for a projected shortfall of R243 billion, which will have to be funded by borrowing.
“Put another way,” Mboweni told MPs, “We are borrowing about R1.2 billion a day, assuming we don’t borrow money on the weekend.”
In the year to come, the nation will shell out R209.4 billion just servicing interest on debt. That amounts to around R1 billion every working day.
As a result, Treasury expects Gross National Debt to rise to just over 60% of GDP by 2023/2024, before pulling back to below 60% two years later.
A large component of the increasing government spending is the public service wage bill, which currently accounts for over 34% of national expenditure.
Mboweni has termed the level of expenditure as unsustainable, and has pledged to find ways to minimize it where possible.
This includes shrinking staff by natural attrition, cutting back on overtime and bonus payments, and facilitating the early retirement for public servants who want to accelerate their exit.
Speaking in a pre Budget briefing Mboweni said he’s not convinced the size of the public service is the problem, suggesting the pay levels of public servants could be the real issue.
An added blow to the equation is a massive under-collection by SARS – Treasury reports just over R15 billion less than expected will flow into the fiscus from revenue collection this year.
This is due in part to higher than expected VAT refunds.
The revenue service will be a key focus area for Mboweni and his team in the coming months. He’s promised a permanent Commissioner will be appointed in the coming weeks, and the Large Business Unit, disbanded under Tom Moyane’s stewardship of SARS, will be reformed in April this year.
In terms of taxes, government is moving to increase revenue by upping so-called sin taxes and taxes on fuel.
Beer will go up by 12 cents a can, a bottle of whisky will cost R4.54 more, and a packet of cigarettes will cost R1.14 more.
It’s not just traditional smokers who need to beware – Treasury has warned vapers they’re coming for them too, with plans to impose taxes on electronic cigarettes and tobacco heating products.
Gamblers can also be expected to start contributing towards rehabilitation programmes for addicts.
Draft legislation will also be published soon for the introduction of a 1 percent gambling tax to mitigate the negative effects of excessive gambling.
Tax on fuel rises by 29 cents a litre for petrol, and 30 cents a litre for diesel.
Personal income tax remains unchanged, but there’s also no measure to mitigate for so-called bracket creep.
The growth of Government expenditure is expected to outstrip inflation over the next three years, averaging 7.8%.
Treasury is adjusting budget baselines to save just over R50 billion, and reprioritizing spending to focus on social and infrastructure spending, with a focus on health, education, roads and public infrastructure.
“Learning and culture receives the largest share of spending,” Mboweni said, adding more than R30 billion will be allocated to build new schools and maintain existing infrastructure.
Prioritised infrastructure projects include a plan to eradicate pit latrines in schools, maintain roads and expand integrated transport systems, as well as the construction of an academic hospital in Limpopo.
Mboweni also announced the department of Arts and Culture will be considering a new national theatre and national gallery, stressing the importance of preserving South Africa’s cultural heritage
“The global renown of South Africa’s art and culture is an expression of our soft power and our heritage”
Social spending also gets a small boost, with an R80 per month raise on the cards for pensioners, and a R40-per-month bump for foster care grants.
R69 billion will go towards the plan to unbundle Eskom, split into equal portions over the next three years.
This is, however, a provisional figure, that could increase or decrease, depending on the size of the tariff hike NERSA allows Eskom to implement.
There’s little by way of granular detail as to how the unbundling will play out, but Treasury has indicated that the creation of the Transmission company will be given priority.
The company will have an independent board, and will take control of all the utility’s transmission assets – the entire grid, substations and the national control centre.
But before it can begin to operate as a stand alone entity, there is a lot to be done – including moving all physical assets to the new company, moving all service provider and client agreements, and forging an agreement with organized labour to move existing workers to the new company.
Mboweni was at pains to point out that the financial support will come with strict conditions.
“I want to make it clear: the national government is not taking on Eskom’s debt”, he said, “Eskom took on the debt. It must ultimately repay it.”
Government will focus on containing costs at Eskom, improving technical performance, and carrying out crucial maintenance. A new shareholder agreement will also be inked with Public Enterprises Ministry, that will set out strict targets for Eskom executives, the achievement of which will determine how they are paid.
Mboweni is taking a hard line on struggling state-owned companies, and says Treasury has had to revise its contingency reserve upwards to R13 billion to respond to all the requests for financial support.
Guarantees to Denel and SAA have been increased this year, and Treasury will be allocating R1.5 billion to the Post Office over the next three years.
Mboweni has warned that there will be no more doling out of money to SOEs and other public entities without very clear and stringent conditions. In the case of Eskom, this will take the form of a reconfiguration officer, who will be appointed by government to oversee the process, and to ensure tax payers money is not misused.
This, Mboweni says, will be the case for all bail-outs going forward, to ensure every cent that is spent is spent wisely
“[They are there] to guard our cash – there’s no free lunch here, this is tax payers money”
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Apart from taking a hard line on ailing SOE’s Mboweni has also urged South Africans to play their part in growing the economy, telling them to pay their taxes and their municipal bills on time
“Collecting revenue due to the state is the underlying foundation of our democracy, of building a nation, and it is our duty to pay for services, especially if we can afford to do so”
Mboweni also called for data costs to fall, announcing the issuing of a policy direction to ICASA for the licensing of the spectrum, and promise to work relentlessly with the minister to resolve the matter.
In an attempt to kick start growth, Treasury has allocated just over R481million to the Small Enterprise Development Agency to expand its business incubation programme, and has pledged R18,4billion, to accelerate land reform.